Handling Academic Transcripts When Faced With Bankruptcy Petition

One of the most contentious issues that has surfaced in the law of bankruptcy in recent years is whether an educational institute must release academic transcripts when the underlying tuition costs have not been paid, upon the filing of bankruptcy by the parent, guardian and/or student. The issue of whether an educational institution is authorized to withhold those transcripts has produced a dizzying array of court decisions. In over twenty years, the courts have not developed a consistent approach to address transcript cases.

Courts rely on the Bankruptcy Code when they evaluate whether an educational institution may or may not withhold a transcript. Specifically, Section 362 of the Code creates an automatic stay that arises when a debtor files for bankruptcy protection under any chapter of the Bankruptcy code.

The automatic stay’s scope is broad. Stayed conduct includes the commencement or continuation of administrative, judicial or other similar actions; the enforcement of a judgment against a bankrupt debtor or against proper of the estate; acts affecting property of the estate; and acts to create, perfect or enforce liens against property of the estate or debtor. Additionally, the Bankruptcy Code includes a catch-all provision that stays all acts to collect, assess, or recover claims against a bankrupt debtor that arose before the bankruptcy case was commenced.

When considering the stay’s application to educational transcripts, the courts interpret the force of the automatic stay provision differently. While the purpose of the stay is to protect a bankrupt debtor, a fundamental policy behind the code is to provide relief to the creditors.

Currently, the only aspect of the stay violation that appears to be undisputed is that withholding a transcript does constitute an “act” which may violate the automatic stay. Yet, other factors have led the courts to varying results.

The first component that may alter a court’s decision is whether the tuition costs associated with those transcripts, an account or loan, has been declared nondischargeable. This classification is important as it concerns whether or not the automatic stay is applicable to the actions of the educational institution. For some courts, dischargeability is a signification faction and they require an official finding of nondischargeability in order to hold that retaining the transcript is not a violation of the automatic stay. However, although some educational loans may be nondischargeable, tuition is dischargeable.

The second factor that may affect a court’s decision is whether the educational institution has an official policy not to supply transcripts where there is an outstanding obligation. There had been one Court that took this under consideration and ruled in favor of the creditor/educational institution. Since that Court’s ruling, several courts have ruled contrary.

Finally, the courts have not addressed the right of a creditor to seek relief from the automatic stay for cause. Thus, in an extreme situation, an educational institution may be successful in seeking relief from the automatic stay in order to withhold a transcript. However, if the creditor cannot establish sufficient cause until a finding of nondischargeability is made, withholding a transcript will be considered a violation of the automatic stay.

Courts have recognized that the stay provision lists exceptions and concluded that because educational loans and tuition are not excepted, but other nondischargeable debts are excepted, Congress must have intended that the collection of educational loans and tuition be subject to the automatic stay.¹

The determination as to when an automatic stay terminates depends on the type of action being stayed. The stay of an act against property of the estate terminates when such property is no longer property of the estate. For all other acts, the stay terminates upon the earliest of three situations: (1) when the case is closed; (2) when the case is dismissed; or (3) at the time the discharge is granted or denied.

The withholding of a transcript presents a unique situation. Unlike other instances where the creditor holds an item as collateral, a transcript has no inherent economic value to an educational institution. Thus, it is clear that the educational institution is using the transcript solely as leverage. Most recent court cases state that withholding the transcript of a student debtor violates the automatic stay. The sole purpose for withholding the transcript is to collect on a pre-petition debt and this is expressly prohibited by the Bankruptcy Code.

It is important to note that a party damaged by a willful violation of the stay is entitled to recover actual damages, which may include costs and attorney’s fees and even punitive damages may be recovered in appropriate circumstances. Therefore, the most prudent course to take when presented with a bankruptcy petition is to seek the advice of counsel immediately, to ensure proper steps are taken and no action is made that may be held a violation.


¹ California State Univ., Fresno v. Gustafson (In re Gustafson), 111 B.R. 282, 286 (Bankr. 9th Cir. 1990). See also Andrews Univ. v. Merchant (In re Merchant), 958 F. 2d 738, 741 (6th Cir. 1992) (noting that although  the educational loans are presumptively nondischargeable, they are not listed in the exceptions to the automatic stay provision and therefore, the University was in violation of the automatic stay).